Mortgage Rates

I was thinking about a refi and was wondering ...how long does it take for the mortgage industry to digest the new Fed Funds rate and adjust their loan products to reflect the new interest rate? IOW, when will the standard 15 and 30 year fixed rates follow with a .25 pt reduction?

mortgage rates on standard 15 and 30 yr loans are tied to the 10-year note, not the fed funds rate that they fudge around.

You need the Asians to be agressive buyers of US debt or a stock market pounding in the ass and the flight to quality of the investors into these notes to bring the rate down.

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Yep. Flight to quality is the only thing to bring these rates down further. Not likely to get that much lower for the next year or so. The above listed scenarios will result in 30-year fixed at about 5-5.25% and 15-year fixed at 4.75-5%.

Right now rates are right around 6%. How much lower do you want them. Historically you'll only see them about 0.75% lower and the chances that they go much higher from here are pretty good.

I was thinking about a refi and was wondering ...how long does it take for the mortgage industry to digest the new Fed Funds rate and adjust their loan products to reflect the new interest rate? IOW, when will the standard 15 and 30 year fixed rates follow with a .25 pt reduction?

Thanks.

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Are you looking to simply pay less overall or less per month? Or are you tryingto pull equity out? Many times a simple equity loan/second mortgage is the better way to go. I've got a spreadsheet that determines which is best but I'd need to know the situation on your current mortgage and what you're trying to accomplish.

How much do you owe now?

What's your house worth according to a bank appraiser?

Are you looking to pull equity out?

How much?

Are you looking to reduce payments, payoff early, or lock in good rate?

I own a home that can be appraised at @500K. My current balance is 188K with a 30 yr fixed rate at 6.38%. I'm looking to refi in the neighborhood of 300K and use the remainder to consolidate bills (two college kids) and add to discretionary funds.

I could do a lot better for you if I knew what your current payments are and what your property tax is. Let's make a few assumptions since I don't know that much about you.

Assumptions:
-you can probably make 10% annually on your trading capital.
-any debt you are trying to consolidate is around 9%.
-your current house payment is about $2K month

You can actually refi with a great rate for about $350K with most lending institutions. A second mortgage isn't going to get you a better combined rate because you first mortgage rate isn't lower than current rates. And your situation is good enough that you don't need to combine two mortgages for any reason.

A refi right now isn't going to get you a better rate than you currently have. It might however increase your cash flow. I always encourage people to run their personal finances like a business. Cash flow is much more important than debt.

If my assumptions on your mortgage payment were close to correct, it is likely that using home equity to consolidate your debt will result in better cash flow. The beauty of real estate is that the banks allow you to use the equity without forgoing the appreciation, provided that you pay them interest. If the interest is lower than the appreciation then you're making money automatically. That might not be the case this year, but as long as the mortgage rate doesn't out pace your home's appreciation by more than the current student loan rate, then you're better off using home equity to finance you kids' school.

Now that we solved the school issue, we can turn to the increased discretionary funds. We assumed you'd be able to make at least 10% on those funds which will beat the refi rate by about 4%.

All this and your cash flow didn't change at all. You aren't in dangerous territory in terms of your house, because you still have 30% equity as a cushion.

Obviously this is all based on assumptions and could be much more accurate, but the point in the end is that if I were you I would refi now for $350,000 and not wait for rates to fall any further.

If you want to provide more specific information I would be happy to provide more specific advice. But I'd need to know what your personal financial goals are, as well as your investing abilities.

The next question you should ask is the 10% return quaranted risk free

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No such thing as risk free. Not even money market.

In my experience, it doesn't really matter in the medium/long term. Even the short term isn't that affected. I base all my planning around purchasing power. The additional risk is actually quite small in the end. The key is to have a plan in place. IMO, there are few good planners out there.

I could do a lot better for you if I knew what your current payments are and what your property tax is. Let's make a few assumptions since I don't know that much about you.

Assumptions:
-you can probably make 10% annually on your trading capital.
-any debt you are trying to consolidate is around 9%.
-your current house payment is about $2K month

You can actually refi with a great rate for about $350K with most lending institutions. A second mortgage isn't going to get you a better combined rate because you first mortgage rate isn't lower than current rates. And your situation is good enough that you don't need to combine two mortgages for any reason.

A refi right now isn't going to get you a better rate than you currently have. It might however increase your cash flow. I always encourage people to run their personal finances like a business. Cash flow is much more important than debt.

If my assumptions on your mortgage payment were close to correct, it is likely that using home equity to consolidate your debt will result in better cash flow. The beauty of real estate is that the banks allow you to use the equity without forgoing the appreciation, provided that you pay them interest. If the interest is lower than the appreciation then you're making money automatically. That might not be the case this year, but as long as the mortgage rate doesn't out pace your home's appreciation by more than the current student loan rate, then you're better off using home equity to finance you kids' school.

Now that we solved the school issue, we can turn to the increased discretionary funds. We assumed you'd be able to make at least 10% on those funds which will beat the refi rate by about 4%.

All this and your cash flow didn't change at all. You aren't in dangerous territory in terms of your house, because you still have 30% equity as a cushion.

Obviously this is all based on assumptions and could be much more accurate, but the point in the end is that if I were you I would refi now for $350,000 and not wait for rates to fall any further.

If you want to provide more specific information I would be happy to provide more specific advice. But I'd need to know what your personal financial goals are, as well as your investing abilities.

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Wow Cache. That was a mouthful. Actually, it seems that you are pretty much right on the money, so to speak, with all of your assumptions. This sounds like some very good advice and it appears you are very knowledgeable on the subject. So, allow me to fine tune a couple of points:

Property tax is currently being pro-rated through tax abatement (a NYC perk!) at about 700 per year and should settle into the 2400 per year rate by the end of 2011.

My mortgage payment is actually more like 1400 per month currently.

The bills I wish to consolidate are about 7%.

But I agree with you 100% that ones personal finances should be treated as a business, and that's exactly what I intend to do. Cash flow is important to me at this stage of my life and it does seem like a good time in history to go out and get some debt.

I thank you for the time you've taken to assess my personal situation.

Wow Cache. That was a mouthful. Actually, it seems that you are pretty much right on the money, so to speak, with all of your assumptions. This sounds like some very good advice and it appears you are very knowledgeable on the subject. So, allow me to fine tune a couple of points:

Property tax is currently being pro-rated through tax abatement (a NYC perk!) at about 700 per year and should settle into the 2400 per year rate by the end of 2011.

My mortgage payment is actually more like 1400 per month currently.

The bills I wish to consolidate are about 7%.

But I agree with you 100% that ones personal finances should be treated as a business, and that's exactly what I intend to do. Cash flow is important to me at this stage of my life and it does seem like a good time in history to go out and get some debt.

I thank you for the time you've taken to assess my personal situation.

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Wow, you're in an even better situation than I assumed. You're in a great situation to increase your net worth dramatically. Sounds like you have a good head on your shoulders.

I usually work with people who aren't even close to the situation that your in. Good for you.